T he Washington area has been a company town for as long as it has served as the nation’s capital, but we are starting to see our economic drivers change dramatically. So far, no collective set of players are coming together to address the new reality.
Local federal spending and the city’s role as the nation’s capital have been the industries underpinning the economy’s growth since 1790, when the District was created to become the new capital city. Beginning around 1980, federal spending became the dominant force in the growth of the private sector with procurement contracting growing from $4.2 billion to $82.4 billion in 2010.
But that all changed in 2011 when federal budget reductions resulted in declining contract awards for the first time in 30 years. In 2013, our regional economy shrank in the “Year of the Sequester” and federal shutdown. Federal employment has declined by nearly 22,000 workers since mid-2010, and federal procurement spending has decreased by more than $13 billion.
Since 2010, average wages in the Washington area have declined each year, a trend we have never before experienced. While the region still has the highest household income in the country, per-household averages have declined between 2009 and 2013.
By 2010, our regional economy had risen to the fourth largest in the country, leap-frogging such manufacturing centers as Philadelphia, Detroit, San Francisco, Boston and Pittsburgh by 2010. This year, the Washington-area economy will slip to sixth place; it has already fallen behind Houston — and Dallas — will overtake it before the year is over. The only major metropolitan area that Washington is growing faster than today is Philadelphia. Even the Detroit-area economy outperformed us in 2014.
So what will drive our economic future, do we possess comparative advantages with unrealized growth potential, and are there other economic growth drivers that could accelerate our economy? These are critical questions that need immediate answers if we hope to achieve world-class business status for the most important city in the world. Yet there are no plans or strategies, no recognition of what is at stake or what the costs are of inaction.
Local business and government leaders must orient their thinking and model their operations against a declining federal spending base, replacing it with an increase in business investment and growth that is not directly dependent on federal spending. The first essential step forward is for the region’s locally elected officials and key business leaders to start talking to each other across jurisdictional (local and state) lines. The scale of the economic challenge is regional. The region needs to be re-branded. Being the center of a dysfunctional federal government is not the image we want to project to our competitors in the global power centers.
When a business confronts a changing economic climate, it retools and reinvests to become more efficient. It introduces new products and services. It penetrates new markets. It reinvents itself. The Washington region needs to follow this same strategy. It is time to look forward, join forces across the Potomac, reinvest in growth and move the Washington-area economy towards becoming a global business center.
Stephen S. Fuller is director of George Mason University’s Center for Regional Analysis. Real estate developer Robert E. Buchanan is president of the local business advocacy organization, the 2030 Group.
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